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Number 3-98
Summer 1998
In recent years, when the ASCS board has held its annual meeting with the SEC
Commissioners and staff in late March or early April, there has been at least
one overriding regulatory issue the Society has hoped to help the Commission
resolve - from shareholder communications, to executive compensation disclosure,
to insider reporting, to shareholder proposal reform.
The Society's most recent meeting with the SEC on April 14 was a little different,
however. With Section 16 issues generally resolved and a release detailing minor
modifications to the shareholder proposal rules nearly ready for publication,
there was not a major "big picture" topic on the table this year.
This gave the Society presenters an opportunity to focus on several specific
disclosure issues, such as Year 2000 compliance, electronic distribution of
proxy materials, Form S-8 amendments, and Rule 144 changes.
Two SEC Commissioners attended the session - Laura Unger and Norman Johnson
- along with Division of Corporation Finance Director Brian Lane and more than
a dozen key staff members, primarily from that division. [Lane will be addressing
many of the issues discussed at the open meeting, as well as other current and
future SEC initiatives, when he presents an "SEC Update" during the
National Conference in San Diego.]
Leading off the ASCS presentation, former Chairman Stephen Norman indicated
that issuers have "gotten the message" concerning the need to enhance
disclosure of their companies' Y2K preparations and readiness. As support, Norman
offered results of a recent ASCS survey on Year 2000 conducted by the National
Office. Norman reported that approximately 475 members responded to the survey.
Nearly 90% indicated that they had made Y2K disclosures in their SEC filings.
Less than 40% indicated that they also reported anticipated expenses for Y2K
compliance in their disclosure, and more than two-thirds used safe harbor language
for forward-looking statements with respect to Y2K disclosure. Only a small
percentage of respondents indicated that they planned to obtain insurance to
cover some or all of their company's Y2K exposure.
Following Norman, Securities Law Committee Chairman Craig Nordlund presented
an update on the success of his company's (Hewlett-Packard) electronic distribution
of proxy materials and annual report. In 1997, Hewlett-Packard had first used
e-mail and the company's Intranet to distribute proxy materials to most of its
employees, reducing the need to print and mail some 40,000 sets of proxy materials.
This year, HP and a number of other companies (see
article in this newsletter) expanded electronic distribution and voting efforts
to include non-employee record holders as well. Nordlund reported that 60,000
of HP's 64,000 employee shareholders accepted electronic versions of the proxy
and annual report this year, while approximately 10 percent of the company's 40,000
non-employee shareholders affirmatively consented to receive electronic forms.
SEC staff members asked a number of questions about the logistics and value
of electronic distribution, and Society speakers requested that the staff provide
guidance as to what constitutes adequate access to electronic proxy materials.
One point that was brought out in the discussion was interest that shareholders
outside the U.S. have in this new form of delivery so that proxy materials will
arrive early enough to permit timely voting.
Form S-8 commentary
Securities Law Committee member Donald Fried next summarized the Society's
comments set forth in a recent letter submitted to the SEC on proposed amendments
to Form S-8 and related rules under the Securities Act of 1933 and Regulations
S-K and S-B (see article in this newsletter). Fried noted
that while the Society agreed with the need to prevent possible misuse of Form
S-8 for capital raising sales of securities or for compensatory arrangements
with those engaged to promote sales of securities, the proposed amendments to
limit its use for the sale of securities to consultants and advisors sweep too
broadly and may inhibit legitimate use of the form to register compensatory
programs important to the success of start-ups and other small-capitalization
registrants.
Speaking to a second major use of the form - for the exercise of stock options
by family members of employee-optionees - Fried noted the Society's support
of the Commission's proposal to amend Form S-8 to permit registered sale of
securities to a limited class of inter vivos transferees (as well as
legatees and heirs) of employee-optionees. Fried called on the Commission to
make Form S-8 available for the broadest range of transferable stock options
that is consistent with investor protection, even if few issuers will use the
full scope of permitted transferability. "You should let the issuer deal
with the administrative problem of who is admissible," Fried said.
Nordlund followed Fried and reiterated the Society's views (stated in a comment
letter filed in April 1997) on key issues raised by SEC proposals for amending
Rule 144. Nordlund said the Society hopes any final rules adopted will provide
a narrow and workable definition of "control group" and would exempt
transactions that have no market impact - i.e., sales of less than one percent
of the outstanding and less than 20 percent of personal holdings - from the
need to file a Form 144.
Gwenn Carr, who chairs the Securities Law Committee subcommittee on shareholder
proposal reform, gave a quick summary of the Society's views on the long awaited
final rules on that subject. During Carr's remarks, Commissioner Unger requested
clarification on the purpose behind raising resubmission thresholds. However,
final rules, since adopted, do not call for any changes in the current 3-6-10
percent thresholds (see article in this newsletter).
ISS regulation?
Nordlund then introduced an issue that has surfaced at recent meetings of
his committee - whether the activities of proxy voting advisory organizations,
such as Institutional Shareholder Services (ISS), should be regulated under
the proxy rules. Nordlund noted that many issuers are concerned about the limited
group of companies that actually receive advance notice of ISS comments (approximately
600) and the inadequate time that even these issuers have to react to ISS comments
and offer corrections to inaccurate data before it is sent out to ISS clients.
Nordlund said the Society intends to meet with ISS soon to voice issuer concerns
and will report back to the Commission in future meetings.
Fellow Members:
It is hard to imagine that almost a year has passed since our current board
of directors began its term at the National Conference in Boston - especially
considering all that the Society has accomplished. Our Annual Report details
many of the innovative programs, publications and initiatives that the National
Office, the various Society committees and the 25 local chapters have undertaken.
The report also reflects the Society's financial strength and its growth
in membership to our highest total ever.
Yet there are still many opportunities ahead, especially in programming and
membership expansion. One of our most exciting challenges involves a new initiative
we have worked out with the Nasdaq Stock Market. Similar to an earlier arrangement
made between the Society and the New York Stock Exchange, Nasdaq has agreed
to underwrite the first year's dues for membership in the Society of all new
National Market company listings in 1998.
I am particularly enthusiastic about this new membership effort - being the
first ASCS Chairman from a Nasdaq-listed company. In fact, getting such a program
off the ground was one of my personal goals for the year. Not only will our
arrangement with Nasdaq help expand our audience of companies represented in
the ASCS, but it will also provide us with an opportunity to better understand
the problems of Nasdaq's unique blend of high tech and fast growth companies
and to develop new programs to meet the needs of corporate secretaries of these
companies.
Since many Nasdaq companies do not have a separate corporate secretarial function,
we haven't always known the best person to contact about the benefits of
belonging to the ASCS. Working closely with Nasdaq as a part of this membership
program will help the Society learn more about how these companies are governed
and who is responsible for assisting the board, handling regulatory responsibilities
and providing different shareholder services. With that knowledge, the ASCS
will be better able to provide the kinds of programs and other resources to
assist these new members professionally.
In addition to our Nasdaq efforts, Society leaders have also focused recently
on improving communications with Institutional Shareholder Services (ISS), the
group whose role has become increasingly significant during the proxy voting
process. In a meeting in early June in Washington, several Society officers
and national committee chairmen met with ISS in an effort to understand better
that organization's procedures and processes. We hope that this and future
meetings will result in better communications between issuers of every size
and ISS during the critical period when ISS is making voting recommendations
and exercising voting authority.
Opening dialogues with Nasdaq and ISS are just some of the communications efforts
the Society has undertaken this year. Communication, a key focus all year, is
the theme of this year's National Conference in San Diego. No responsibility
of Corporate Secretaries or the organization that serves them is more important
than keeping information flowing smoothly and accurately.
I look forward to seeing many of you in San Diego and to continuing to work
closely with the ASCS as a Past Chairman. I want to thank the many members,
directors, committee chairmen, local leaders and National Office staff who have
helped make my year as Society Chairman so personally rewarding.
- September 18-20- Chicago, Detroit, Kansas City, Milwaukee and Twin Cities at Grand Geneva Resort & Spa, Lake Geneva, WI
- September 24-26- Los Angeles, Pacific Northwest, Phoenix, San Diego and San
Francisco at The Riverplace Hotel, Portland, OR
- September 24-27 -Middle Atlantic at The Homestead, Hot Springs, VA
- September 24-27 -Colorado, Dallas, Houston, New Orleans, Oklahoma, St. Louis
and Southeastern at Snowmass Resort, Aspen, CO
- September 25-27 -Ohio, OKI Tri-State and Pittsburgh at Nemacolin Woodlands
Resort, Farmington, PA
- October 8-10 -Eastern New England, Fairfield-Westchester, Hartford and New
York at The Sagamore on Lake George, Bolton Landing, NY
Barnickol, Nordlund to lead Society in 1998-99
  Karl
Barnickol (left) of Solutia Inc. and Craig Nordlund (right) of Hewlett-Packard
Company have led parallel careers in the Society. Both joined the ASCS in 1980,
served as Presidents of their local ASCS chapters (Barnickol in St. Louis and
Nordlund in San Francisco), were active members of the Securities Law Committee,
and chaired that committee for three years. The parallelism will become complete
when Barnickol assumes the ASCS Chairmanship at the Annual Meeting of Members
on June 27, during the National Conference, and Nordlund is chosen as Chairman-Elect,
putting him in line to become Chairman in 1999-2000.
In their role as Chairman of the Securities Law Committee, both Barnickol
and Nordlund have long been recognized as spokemen for the Society on securities
law issues and, in particular, as leaders in dialogues with the Securities and
Exchange Commission. They have been principal authors of numerous comment letters
submitted by the Society to the SEC. Each has also served on the faculty at
several annual Issues Update seminars, providing insights on securities law
matters.
In addition to Barnickol and Nordlund, nine other Society members are standing
for election at the Annual Meeting for terms on the ASCS Board of Directors.
Joyce Haag of Eastman Kodak Company and the New York Chapter, has been nominated
to serve a two-year term expiring in 2000. Nominated to serve three-year terms
expiring in 2001 are: Brigitte Dewez of UNOCAL Corporation (Los Angeles Chapter);
Robert Hilton of USX Corporation (Pittsburgh Chapter); Leslie Klemperer of Delta
Air Lines, Inc. (Southeastern Chapter); Michael Maloney of Orion Capital Corporation
(New York Chapter), Ann Mulé of Sun Company, Inc. (Middle Atlantic Chapter);
Stephen Paul of Shell Oil Company (Houston Chapter); Thomas Sanger of Pacific
Enterprises (Los Angeles Chapter); and Gloria Santona of McDonald's Corporation
(Chicago Chapter). Photographs and detailed biographies of each of the officer
and director nominees are printed in the Society's Annual Report and Proxy
Statement, mailed out to members in early June.
Few changes made in shareholder proposal process
More than two years ago, former SEC Commissioner Steven Wallman began proposing
significant changes in the shareholder proposal process that were designed to
incorporate interests of both the corporate and shareholder communities and
to help extricate the Commission staff from its central role as "referee"
in the process. Wallman's proposed changes went through a two-year battle (during
which more than 2,000 comment letters were submitted to the SEC on proposed
rules) and what eventually emerged when the Commission adopted final rules in
late May is generally the same process that was in place prior to 1992.
The two changes that were incorporated into the final rules as set forth in
Release No. 34-40018 involve reversal of the staff's position on employment-related
proposals stated in the 1992 Cracker Barrel no-action letter and amendments
to Rule 14a-4, which involves proposals brought from the floor at annual meetings
outside the Rule 14a-8 structure. The Cracker Barrel reversal means that, as
was true before 1992, employment-related proposals will not be automatically
excludable as "ordinary business" and must be reviewed by the staff
on a case-by-case basis to determine if they raise "significant social
policy issues." The changes to Rule 14a-4 provide shareholders and companies
with clearer guidance on companies' exercise of discretionary voting authority
on proposals that surface after a company mails its proxy materials.
Other minor changes adopted involve (1) increasing the minimum dollar value
of a proponent's shareholdings in a company from $1,000 to $2,000; (2)
establishing a uniform 14-day period in which shareholders are required to respond
to a company's notification that a shareholder has failed to comply with
one or more procedures under Rule 14a-8; and (3) requiring companies to disclose
the date after which proposals submitted outside the framework of Rule 14a-8
are considered untimely for the purposes of amended Rule 14a-4.
For Society members, the most important changes deal with discretionary voting
authority in connection with proposals brought from the floor at annual shareholder
meetings. The amended rules would now allow a company discretionary voting authority
where the company did not have notice of the matter by a date more than 45 days
before the month and day in the current year corresponding to the date on which
the company first mailed its proxy materials for the prior year's meeting
(or by a greater number of days if the company has in place an advance notice
bylaw that specifies such a time period).
Amendments adopted to Rule 14a-4(c)(2) allow a company to exercise discretionary
voting authority notwithstanding its receipt of "timely" advance notice
of a non-14a-8 shareholder proposal if the company "advises" shareholders
in its proxy statement of the nature of proposals that may be raised at the
annual meeting. Companies will not have to include a separate voting box on
proxy cards permitting shareholders to withhold discretionary voting authority.
However, companies are precluded from exercising discretionary voting authority
on matters as to which it has received adequate notice if the proponent provides
the company, as part of that notice, with a statement that it intends to solicit
the percentage of shareholder votes required to carry the proposal, followed
with specified evidence that the stated percentage had actually been solicited.
"I think we missed an opportunity to improve the process," said
ASCS member Gwenn Carr, who chaired the Securities Law Committee subcommittee
on shareholder proposal reform, "but the definition of improvement was
so different among the various groups involved that it was virtually impossible
to agree on any major change in Rule 14a-8. Many Society members would have
liked to see an increase in the resubmission thresholds so that proposals with
very little support could be eliminated sooner. Increasing to a meaningful level
the number of shares a proponent would have to own in order to be eligible to
submit a proposal also would have been helpful. Without any other changes, those
two modifications would have made it more likely that those proposals which
were included in proxy statements would be both substantive and significant
to shareholders with a meaningful stake in the outcome of a vote."
Carr added that one positive result of the two-year discussion process on
new rules is that companies will probably not have to adjust to any new changes
for quite a while. "I don't see any new initiative coming forth for at
least the next 10 years," she said. "By that time a whole new group
of people will probably be involved in the process, and the outcome might be
different."
In comments submitted to the SEC in mid-April, the Society's Securities
Law Committee called on the Commission to broaden the class of persons to whom
stock option transfers can be made using Form S-8 and to ease proposed restrictions
in the use of the form to register compensatory programs for consultants and
advisors who provide legitimate services important to the success of start-up
and small-capitalization registrants.
The Society letter was submitted in response to proposed amendments to Form
S-8 set forth in Release Nos. 33-7506, 34-39669 (see
April 1998 newsletter). Form S-8 provides abbreviated disclosure for offers
and sales of securities to compensate employees, including consultants and advisors
who render bona fide services to the company. The proposed revisions clarify proper
use of the form and attempt to prevent its misuse for capital raising sales of
securities to the general public without appropriate disclosure or for compensatory
arrangements with promoters engaged to push the registrant's securities.
In the new release, the SEC has also proposed extending the use of Form S-8
to register securities underlying stock options to permit transfer of options
to family members for estate planning purposes or for divorce settlements.
Transferable options
The Society's letter focuses on both proposed uses of the form. Addressing
use of Form S-8 for transferable stock options, the ASCS letter calls for making
Form S-8 available "for the broadest range of transferable stock options
that is consistent with investor protection purposes of the federal securities
laws, even though few issuers may choose to avail themselves of the full scope
of permitted transferability. Issuers should be accorded the flexibility to
decide for themselves to what extent permitting employee-optionees to transfer
stock options during their lifetime is consistent with the purposes of the issuers'
stock incentive programs and not unduly burdensome to administer."
To that end, the Committee urged the SEC to modify the proposed amendments
so as to make Form S-8 available for registration of exercises of stock options,
transferred or transferable by gift or pursuant to a domestic relations order
to any individual beneficiaries, to trusts principally for their benefit, to
corporations, partnerships or other legal entities principally owned by them,
or to charities. This proposal would leave it to issuers and plan administrators
to determine how distant, "in this age of extended families," the
relationship may be without conflicting with program objectives.
The Society letter also addresses a number of specific questions posed by the
Commission in the release. For example, the Society recommends that the categories
of relationships be broadened to include domestic partners as well as spouses
and other family members; that the same definition of "immediate family"
be used for Section 16 and Form S-8 purposes; that options transferred for value
generally not be covered by Form S-8 since permitting such transactions could
lead the development of a secondary market in employee stock options; that the
broadest range of entities that might be used for estate planning purposes be
entitled to rely on Form S-8 in exercise of an assigned stock option; that if
reload options are issued directly to the assignee, the assignee should be entitled
to rely on Form S-8; that the scope of Form S-8 should be the same for employee
stock options and for the underlying shares deliverable upon exercise.
Consultant abuses
Addressing the topic of consultant abuse of Form S-8, the Society letter recognized
the SEC's proper concern with preventing possible misuse of Form S-8 for
capital raising sales of securities but noted that the proposals in the release
"may sweep too broadly and may inhibit legitimate use of the Form S-8 to
register compensatory programs important to the success of start-ups and other
small-capitalization registrants."
To deter potential abuse, the ASCS recommended limiting the volume of securities
registered on Form S-8 that can be transferred to consultants to a fixed percentage
of outstanding securities of that class; requiring a brief waiting period -
such as 10 days - for the registration to become effective; and requiring
a check mark (and an electronic tag in the header) on the cover page of those
Form S-8 to identify them for potential staff review.
The Society letter also responded to a number of other Commission requests
for comment posed in the SEC release. For example, the committee stated its
belief that differences between the definition of consultants and advisors for
purposes of Rule 701 and Form S-8 are appropriate; that there is no need to
name all consultants to whom securities will be transferred, the number of securities
and the specific services to be performed; and that it should be sufficient
to provide such disclosure only when the aggregate amount of securities transferred
to a consultant on Form S-8 exceeds a certain threshold (e.g., a transfer to
one consultant of more than one percent of the outstanding securities or the
same class or a transfer to all consultants of more than 10 percent of the outstanding
securities of the same class).
Copies of the Society letter and the SEC release are available by contacting
Blanca Rosbach at 212-681-2010 or via email to brosbach@governanceprofessionals.org.
The Council of Institutional Investors (CII) in early April adopted a new "Bill
of Rights" that includes general position statements, basic policies and
fundamental core policies concerning corporate governance practices of publicly
traded corporations. In the preamble to the Bill of Rights, the Council notes
that the policies "bind neither members nor corporations. They are designed
to provide guidelines that the Council has found appropriate in most situations."
[Copies of the document are available from the Society's National Office
by contacting Blanca Rosbach at (212) 681-2010 or via email to brosbach@governanceprofessionals.org.]
The five "core policies" adopted by the Council call for directors
to be elected annually; for at least two-thirds of the board to be independent
(have no connection to the corporation or its CEO other than the directorship);
for disclosure of all payments to directors or their families and all significant
payments to companies, nonprofits, foundations and other organizations with
which board members have some significant involvement; for all members of the
Audit, Compensation and Nominating Committees to be independent and for these
committees to have the opportunity to select their own chairs and service providers;
and for a majority vote of common shares outstanding to be required to approve
major corporate decisions concerning the sale or pledge of corporate assets
which would have a material effect on shareholder values.
The Council's document also sets forth specific policies related to shareholder
voting rights, matters that should require shareholder approval for adoption,
shareholder meeting rights, board accountability to shareholders, and director
and executive compensation. Among other things, the voting rights policies call
for only one class of voting stock, no bundling of unrelated voting issues,
no supermajority vote requirement for amending company bylaws, and broker non-votes
and abstentions to be counted only for purposes of a quorum. Focusing on shareholder
meetings, the CII calls on corporations to consider shareholder expense and
convenience in selecting meeting sites, to require directors to attend annual
meetings and make themselves available for shareholder questions, and to keep
polls open until all business matters have been discussed and shareholder questions
answered.
The Council also adopted several controversial policies related to board accountability
to shareholders. These policies called on boards to
- review any director from whom at least 10 percent of the votes cast are
withheld;
- to take action recommended in a shareholder proposal receiving a majority
of votes cast for or against, unless the board communicates compelling reasons
for not doing so;
- put to a binding shareholder vote any proposals that receive a majority
of votes cast for or against for two consecutive years (with a notable exception
for resolutions dealing with the sale of the company when the board has retained
an investment banker to seek buyers and no buyers have been found);
- disclose individual director attendance figures for board and committee
meetings and distinguish between in-person and telephonic attendance.
CII's compensation policies call for annual review of CEO compensation
and bonuses, ownership of common stock by all director, payment to directors
only in cash or stock, with the majority of compensation in stock, awarding
executive officers with only one form of equity-based compensation; and no repricing
or replacing of "underwater" options without shareholder approval
.
The new "Bill of Rights" also iterates Council positions on board
shareholder accountability, board size and service, board meetings and operations,
and compensation.
Results of survey on "bad news" disclosure
At the request of a Wall Street Journal reporter, the Society conducted
a quick survey to determine company attitudes toward disclosure of bad news
in the light of the Securities Litigation Reform Act of 1995. More than 325
companies responded by fax within a two-day period, and the results were cited
in a Journal article on June 17.
The survey consisted of four questions, three substantive and one that asked
whether the company was in a high tech or similar industry that has faced considerable
shareholder litigation in recent years due to volatility of share prices. Here
is a breakdown of responses to the substantive questions by all respondents:
- Has the Securities Litigation Reform Act of 1995 changed how your company
feels about issuing press releases announcing bad news?
Yes 43 (13%); No 284 (87%)
- Do you feel that the Act provides greater protection than before against
shareholder class-action suits in the event of bad news disclosure?
Yes 207 (64%); No 116 (36%)
- How would you describe your company's general disclosure style when
faced with bad news?
We usually limit our initial disclosure to what is legally required. 140 (43%)
Under the direction of our IR and PR departments, we sometimes go beyond
legal requirements in our initial disclosure. 185 (57%)
- Here is a breakdown of responses from high tech or similar companies:
1. Yes 17 (35%); No 31 (65%)
2. Yes 29 (59%); No 20 (41%)
3. Legal limit 17 (35%); Go beyond 32 (65%)
New committee chairmen appointed
Not only will most of the Society's national committees be holding their first
meetings of the year at the National Conference in San Diego, but several new
committee chairmen will also be presiding over their first meetings. Starting
with the 1998-99 year, new chairs are taking over the Securities Law, Corporate
Practices, Education, Technology, and Finance Committees.
Assuming leadership of the Securities Law Committee will be Peggy Foran of
Pfizer Inc. She replaces Craig Nordlund, who completed the maximum three years
as chairman of that committee and presided over the Society's recent efforts
to clarify Section 16 insider reporting requirements, to reform the shareholder
proposal processes and to simplify disclosure requirements.
Kathy Gibson of Honeywell Inc. is replacing Cherie Sorokin as Chairman of
the Corporate Practices Committee. During her three years at the helm of Corporate
Practices, Sorokin was the driving force in updating and enhancing the style
and substance of many of the Society's monographs and guidebooks. New committee
publications on topics ranging from governance practices and annual meeting
preparation to minutes writing and dealing with analysts have received considerable
interest from the business community and have generated increased revenue for
the ASCS.
Lenore Martin from PacifiCorp is taking over the Education Committee from
Laura McKeown. Under McKeown's leadership, the committee revamped the Society's
successful "Essentials" seminar program, incorporating a core faculty
concept and developing a new type of resource guide for seminar attendees.
Kapua Rice of Niagara Mohawk Power Corporation is taking over the Society's
newest national committee - the Technology Committee. Former Education Committee
Chairman Jean Schmidt had agreed to serve as an interim chairman to get the
new committee started last year. Rice plans to follow up on several of the projects
already begun under Schmidt's leadership, including development of a sample
Intranet page for the Corporate Secretary's Office, creation of a sample corporate
Internet and email policy and coordination of a joint technology/records management
seminar scheduled in Chicago in March 1999.
One additional committee chairman who will be assuming leadership in 1998-99
is Nicholas Calise of The BF Goodrich Company, who is replacing Rebecca Morris
as head of the Finance Committee. During Morris' three years, the Society
has surpassed budget expectations each year and strengthened its financial base.
Mike Harper dies at age 90
Berchel ("Mike") Harper, who proudly participated in the ASCS for
more than 50 years, died at his home in Omaha, NE on April 19 at the age of
90. Harper was employed by Northern Natural Gas Company (now Enron Corporation)
for more than 40 years. It was there in 1947, that Harper first heard of the
existence of the ASCS, which had been founded in New York the year before and
was in the process of establishing a Chicago Chapter. Harper, who was new to
the Corporate Secretary position and was looking to network with colleagues
at other companies in the Midwest, quickly joined the Chicago group. He later
became President of the Chicago Chapter and served as national Chairman of the
ASCS in 1971-72. He continued to be active in the Society after his retirement
and attended National Conferences up until the past few years. Harper is survived
by his wife Alice.
Owsley receives promotion
Thomas Owsley, a former director of the Society who twice served as President
of the Middle Atlantic Chapter, has been elected Senior Vice President-Legal
at Crown Central Petroleum Corporation in Baltimore, where he has been employed
since 1983. Owsley first joined the Society in 1976 when he was Assistant General
Counsel at Martin Marietta Corporation. He was Middle Atlantic President in
1981-82 and again in 1993-94. He served on the national board between 1982 and
1985.
"When," "where" and "how" of 1998 annual meetings
Most Society members from public companies have two consistent thoughts when
they consider annual meetings of shareholders: (1) that a good meeting is one
that is uneventful; and (2) that the next meeting is just 12 months away.
Luckily, most annual meetings so far in 1998 have been uneventful. And, best
of all, most meetings have been completed by this time of the year. So that
means it is time to begin planning for 1999. To help in your planning for next
year, the Society has completed its yearly annual meeting study. Members from
674 companies responded to this year's survey designed to elicit information
about meeting dates, locations and practices. The study provides valuable information
not only about the "whens" and "wheres" of annual meetings
but also about such "hows" as how companies are attempting to streamline
meetings to save time or cost, if and how they are keeping time for question-and-answer
periods, and how they are handling refreshments and giveaways at annual meetings.
[The annual meeting list, containing dates and locations for 674 company meetings
in 1998 is available from the National Office by contacting Blanca Rosbach at
(212) 681-2010, via e-mail at brosbach@governanceprofessionals.org,
or via Fax-on-Demand. Cost for the list is $19.]
The new Society study indicates that, for most companies, the "wheres"
seem to be consistent from last year. For example, the three most popular meeting
cities follow the same order as in 1997 - New York, Houston and Chicago.
Most companies (69%) also held their meetings at the same location as last year.
As to specific meeting location - 233 respondents said their companies
are holding their meetings in hotels, 182 at corporate headquarters, 90 in an
auditorium, 31 in a theater, 23 in an office other than company headquarters,
and the rest at facilities ranging from country clubs and restaurants to attorneys'
offices.
The "whens" of 1998 annual meetings are also consistent with last
year. May continues to be the most popular month for holding annual meetings
(266 of the 674 responses), with April close behind (250). The least popular
months once again are August and December (3 each).
Here are some of the most notable "hows" from this year's study:
- The vast majority of meetings are run by the company chairman (549 of 674),
with the vice chairman, general counsel, or corporate secretary sometimes
presiding.
- 602 (89%) of responding companies require board members to attend the annual
meeting.
- 129 (19%) respondent companies require tickets (up from 16% last year.
- 211 companies (31%) specify time limits for questions or discussion in
their meeting rules. Limits generally range from one to five minutes.
- In most cases the Chairman (with the assistance of the Corporate Secretary)
is responsible for indicating when a speaker has reached the time limit. Other
companies utilize a clock or other timer, and in one company a timekeeper
rings a bell after two minutes have elapsed.
- The establishment of time limits has obviously had an impact on the overall
length of annual meetings. Respondents indicated that, in 1997, 395 meetings
lasted under one hour, 219 were completed in under two hours, and only 18
took longer than two hours to conduct. Timing for 1998 meetings will be reported
in next year's survey.
- The percentages of companies serving food or providing giveaways has gone
down only slightly, even though many companies said they are attempting to
streamline their meetings. More than 80% of respondents continue to serve
lunch or refreshments at their meetings, while 14% provide sample products
and 4 percent provide discounts or discount coupons.
- Specific streamlining methods cited for saving time include: setting time
limits, eliminating part of the boilerplate of the script, eliminating most
speeches and presentations, omitting ratification of auditors, and foregoing
product demonstrations.
- Specific streamlining methods cited for saving cost include: discontinuing
serving refreshments, eliminating certain video presentations, reducing the
required hotel stay for company personnel or board members.
- 245 companies said they permit cameras at annual meetings.
The honor of first meeting of the year went to Dofasco Inc., which held it
meeting on January 5 at its headquarters in Hamilton, Ontario. The last meeting
planned in 1998 will be Parker Drilling Company's gathering at its headquarters
in Tulsa, OK on December 16.
Members completing the survey also indicated attendance at their 1997 meetings.
The award for smallest meeting attendance goes to A. O. Smith Corporation in
Milwaukee, which had only one shareholder at its 1997 annual meeting. (The company
reports that no shareholders were present at this year's meeting on April
8 in Wilmington, DE.) The most attended 1997 meeting belonged to Minnesota Mining
and Manufacturing Company in St. Paul, which hosted approximately 4,000 shareholders.
NACD issues report on coping with fraud
A Best Practices Council convened by the National Association of Corporate
Directors has released a report entitled Coping with Fraud and Other Illegal
Activity and aimed particularly at directors, CEOs and senior managers of growing
public companies. Joseph Hardiman, former CEO of The Nasdaq Stock Market, chaired
the Council, which was sponsored by accounting and management consulting firm
Grant Thornton LLP in Chicago.
Noting that "fraud takes a heavy toll on industry" and that directors and top
management of many new and growing public companies may not be aware of recent
regulatory and legal developments aimed at curbing fraud and illegal acts (e.g.,
the Private Securities Litigation Reform Act of 1995 and the Delaware Caremark
decision), the Council report offers guidance to help companies detect and prevent
fraud and other illegal activity.
The Council report outlines four basic principles and a seven-step implementation
approach. The principles call on companies to (1) set the "tone at the
top"; 2) establish director commitment and independence so that when problems
arise, directors will be well-informed and impartial; (3) focus on explicit
fraud risk to bring fraud deterrence to the forefront of the minds of directors,
CEOs and senior manager; and (4) establish an effective communication process
that encourages open, ongoing interaction among the board, top management, employees
and other corporate constituents.
Copies of the new NACD report are available by contacting the group's Washington
offices at (202) 775-0509 or by visiting the Grant Thornton LLP website at http://www.gt.com/resources/assurance/nacd/nacd6.html.
The Society's 1997-98 membership campaign came to a successful conclusion
on March 31, 1998. Nearly 400 new ASCS members were recruited through the campaign,
and total membership as of March 31 reached a new record - 3,757. That
mark is 87 ahead of March 31, 1997. In addition, the number of companies represented
in the Society membership increased by 34 this year to 2,576.
While all members will benefit from the Society's growth, five members in
particular were the big winners, earning exciting vacation prizes awarded as
part of this year's campaign.
John Meagher, a past president of the New York Chapter and former Securities
Industry Committee Chairman, won the grand prize drawing, a four-day stay at
The Homestead, including roundtrip airline tickets via US Airways. Anyone who
recruited at least one member was entitled to win that trip.
The prize for top recruiter of the year went to Tracie Vicki of ChaseMellon
Shareholder Services (Hartford Chapter). She'll be heading off for a vacation
for two at Marriott's Desert Springs resort and spa in Palm Desert, California.
Rick Lennig of Global Financial Press (Middle Atlantic Chapter) was the number
two recruiter and earned a weekend getaway at the St. Regis Hotel in New York.
Bill Moore of Whitman Corporation (Chicago Chapter) won the third-place award,
a weekend stay at the Mandarin Oriental in San Francisco.
In addition, a special drawing was held of the 14 Society members who joined
during the last membership campaign and recruited a new member this year. The
winner of free registration for the Society's 52nd National Conference
in San Diego was Robert Vilsack of the Ohio Chapter.
Thirteen different chapters reached their membership recruiting goals during
the year, with the Colorado Chapter winning the $1,000 prize as the local group
with the highest percentage growth in new members. Colorado, led by its membership
chairman Michael Williams of Bowne of Denver, brought in 23 new members to add
to a beginning chapter roster of 67.
Thank you all for your outstanding work as membership recruiters this year.
Don Hager
Membership Committee Chairman
Society recognizes and honors its long-term members
Several years ago, the Society established two "clubs" to honor those regular
or honorary members of the ASCS for at least 15 years (the "Silver Quill Society")
and to provide special recognition for those who have maintained a connection
with the Society as a regular, honorary or associate member for 25 years or
more (the "Quarter-Century Club"). The members below have been sent silver and
gold recognition pins to signify their addition to one of the two special Society
clubs in 1998. Quarter-Century Club members are also being honored at a breakfast
at the National Conference in San Diego.
New Quarter-Century Club members:
| Donald Anderson |
Thomas Finnegan |
Bernice Lavin |
| Jane Campbell |
John Gear |
Duane Patterson |
| Charles Crockett |
Donald Godiner |
Samuel Rozel |
| James Crowe |
Richard Hart |
Harold Wykes |
| Carl Davidson |
Richard Hrdlicka |
|
| Walter Faulkner |
Kenneth Kaufmann |
|
New Silver Quill Society Members:
| Geraldine Banyai |
Penn Holsenbeck |
Ann Marie Plubell |
| Laura Corwin |
Scott Johnson |
Kasandra Preston |
| Richard Davies |
Thomas Klee |
Thomas Ryan |
| C. Powers Dorsett |
Alexander Krezel |
William Schulz |
| Rita Ellis |
Rebecca Levey |
Gavin Smith |
| Gregg Gibbons |
John Macdonald |
Sandra Spayd |
| Michael Goldblatt |
Patrick Mohan |
Martin Spector |
| Gilbert Haakh |
Lawrence Murphy |
William Stewart |
| Anthony Haueisen |
Howard Myers |
Richard Terrill |
| Jerone Herring |
Janice Percio |
James Thompson |
| Laurel Holschuh |
Thomas Piraino |
Faye Widenmann |
Commentary
Electronic Proxy Voting: "The best is yet to come"
by Ronald H. Gruner, President
Direct Report Corporation
The electronic proxy, which enables shareholders to vote either by telephone
or over the Internet, continued to make inroads this year with registered shareholders.
Approximately 150 firms with registered shareholder bases ranging in size from
over two million to less than 1,000 shareholders elected to provide electronic
proxies in addition to their traditional paper-based proxies in 1998. This represents
a 300 percent increase over 1997, when less than 50 companies provided the capability.
All major stock transfer agents offered the new service either directly or
more typically through partnerships with either Direct Report Corporation or
Proxy Services Corporation. In addition, ADP, which for the last several years
has offered telephone-based proxies to beneficial shareholders, announced early
in the season it would also be providing telephone and Internet-based services
for registered shareholders -- a service which ADP provided for approximately
a dozen companies. ADP expanded its services to street-name holders as well
in 1998, offering both telephone and Internet voting options to shares held
beneficially through all of its clients.
Most firms offering electronic proxy provided both telephone and Internet-based
voting. Although results varied considerably, typically between 10 and 30 percent
of shareholders elected to vote electronically when given the opportunity. Of
those voting electronically, typically between 80 and 90 percent of shareholders
voted by telephone. At Bell Atlantic Corporation, for example, 15 percent of
shareholders voted via telephone and 1.5 percent (one-tenth as many) voted via
the Internet, according to figures supplied by Boston EquiServe, its transfer
agent.
In those instances where shareholder employees with company-provided Internet
access were allowed to vote over the Internet, participation rates were much
higher, occasionally approaching 50 percent.
Results provided by MaryAnn Butera at ADP were similar. ADP handled registered
holder electronic voting for a dozen companies in 1998.
Generally, between 50 and 70 percent of all voters voting electronically voted
within the first two weeks after the mailing date. Thereafter, voting rates
were fairly constant through the end of the voting period.
1998 was the first year that Internet voting was extensively provided. The
process was similar to telephone voting. Shareholders received a proxy package
in the mail including a printed annual report. Those electing to vote over the
Internet then entered the appropriate Internet address (URL) and PIN number
identified on their proxy statement. Once at the site, directions walked the
shareholder through the voting process which typically only required a few minutes,
at most. After voting, most systems provided the option of electronically mailing
(e-mail) the shareholder a confirmation of their vote.
An exception to this basic approach were several high-tech firms, notably Intel
and Microsoft. These firms e-mailed the proxy notice to consenting shareholders
who then obtained all proxy and meeting materials from the company's Web
site saving significant printing and mailing costs.
Industry-wide, there were few problems with either telephone or Internet-based
voting this year. In contrast to last year in which shareholders voting by telephone
were often frustrated by busy tones, calls were answered promptly this year.
The only problem a few shareholders experienced were occasionally slow Web responses
due to high hit rates the first few days after the mailing. Fortunately, this
problem occurred for relatively few shareholders, under five percent.
Long term, the primary benefit to electronic voting will be significantly reduced
costs. A well-designed telephone proxy requires less than a minute to vote when
the shareholder votes in favor of the Board's recommendations, an option
80 to 90 percent of shareholders generally elect. This represents a total tabulation
cost of 20 to 30 cents at current telephone rates, well under the cost of today's
first class postage to return a printed proxy.
Ultimately, Internet-based voting will be even more cost-effective. Proxy tabulation
costs for Internet voting will probably fall below, perhaps well below, ten
cents per vote - reducing proxy tabulation costs by 80 to 90 percent. Even
more significant savings will be achieved as shareholders elect to receive notification
of the annual meeting via email. This will save as much as $5.00 per shareholder
in mailing and printing costs for the annual report and proxy statement.
In 1998, between 25 and 50 percent of shareholders voting over the Internet
requested that in the future that they receive meeting notices via e-mail. The
percentage of consenting shareholders is likely to increase as the technology
becomes better understood and concerns regarding security and confidentiality
are addressed.
Five years from now it is not unreasonable to project that perhaps 25 percent
of all shareholders will use the Internet to obtain their proxy materials as
well as vote. Making the assumption that perhaps another 25 percent vote by
telephone, firms can expect savings of 20 to 40 percent relative to current
paper-based proxy costs. Assuming 60 million registered shareholders, this represents
approximately $75 million in annual industry savings. So unless something unforeseen
occurs, electronic voting is likely to be a case where "the best is yet
to come."
The Corporate Secretary is published throughout the year as a service to members of the Society of Corporate Secretaries and Governance Professionals. Articles or statements appearing herein do not constitute legal opinion, advice or judgment and should not be relied upon as such. Inquiries regarding information contained in this newsletter should be directed to Geoff Loftus, at (212) 681-2000 or by e-mail: gloftus@governanceprofessionals.org. Inquiries regarding membership or publication orders should be addressed to:
Membership Publications
Deborah Fox Olga Holmes
(212) 681-2014 (212) 681-2015
Society of Corporate Secretaries and Governance Professionals
521 Fifth Avenue New York NY 10175
212-681-2000 - Fax 212-681-2005
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